A Company Can Buy a Machine That Is Expected to Have

question 50

Multiple Choice

A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?

• A) $118,855
• B) $583,676
• C) $629,788
• D) $705,391
• E) $1,918,855

---

Definitions:

Subsidized

Referring to goods, services, or activities that receive financial support from the government or another organization to reduce costs and encourage consumption or production.

Command Economies

Economic systems where the government or central authority makes all decisions regarding the production and distribution of goods and services.

Corporation

A legal entity that is separate and distinct from its owners, which can own assets, incur liabilities, and sell securities, among other activities.

Independent Legal Entity

An organization that has legal rights and obligations independent of its members, such as the ability to enter contracts, sue, and be sued.